Interoil Exploration and Production has entered into an agreement to acquire majority interests in one exploration and two production concessions in Argentina for a total consideration of USD 13 million.
The acquisition price is payable in new Interoil shares plus cash.
Recoverable conventional reserves in these licenses are estimated to exceed 8 million barrels, and they also have a significant potential of unconventional oil.
'With this valuable transaction, Interoil makes a significant expansion that involves the entrance into the important and dynamic Argentinian market, with prolific unconventional resources which are attracting top world leading exploration and production companies. The agreed transaction positions Interoil as a key player in the Golfo San Jorge Basin, one of the most profitable hydrocarbon regions in Latin America.
This entrance constitutes a strategic move to a new country which is aimed at broadening our portfolio and diversifying market presence, whilst acquiring 74,000 unconventional acres and opening new value drivers for the long-term development,' says Hugo Quevedo, Chair of the Board of Directors of Interoil.
'Interoilís management has proven expertise in the Argentinian oil industry and extensive knowledge of its institutional and administrative environment which constitutes a critical capability to unfurl the full potential of the new assets in the mid to short term. We are also bringing new shareholders with successful investment track record in exploration and production activity and in Latin America to the company. We are delighted to welcome them as new shareholders, and look forward to creating further value for all,' Mr Quevedo adds.
The Mata Magallanes Oeste (production) and Ca?ad?n Ram?rez (exploration) are adjacent blocks, covering nearly 380 sq kms in the western part of the highly productive Golfo San Jorge Basin in the southern part of Argentina.
This basin is said to hold approx. half of Argentinaís gas reserves and twenty per cent of the countryís oil reserves. Interoil will become the operator and hold an 80 percent working interest in these licenses in a joint venture with Selva Maria Oil and Petrominera, the state-owned company of the Chubut Province where the blocks are located.
The La Brea block (production) covers 112 sq kms in the Jujuy Province in the Northern Argentina, and comprises two promising structures, La Brea Este and El Oculto. Interoil will also become the operator and hold 80 percent working interest in a joint venture with Selva Maria Oil SA and JEMSE, the state-owned company of the Province of Jujuy.
'We have carefully studied these licenses and look forward to working with the other partners to realize the potential of the blocks, both conventional and unconventional. The proposed work program will provide Interoil with a self-sustained Argentinian operation.' says Leandro Carbone, Chief Executive Officer of Interoil.
The initial short-term work program involves work-over operations in existing wells in the Mata Magallanes Oeste and La Brea licenses. Work over program in Mata Magallanes will require an estimated initial investment of approximately USD 500,000 to recover gas-stream to fuel the oil production in the field. Management expects that production levels will reach 150 bopd from existing wells by year end.
In the La Brea Este the estimated initial investments required would also amount to around USD 500,000 to evaluate behind casing oil layers through a workover program in LBE-x1. Management believes production could reach by year end at least 70 bopd. That would prove the existence of hydrocarbon accumulation within La Brea Este structure and help to improve the geological hydrocarbon potential in El Oculto structure.
During 2019, the Ca?ad?n Ram?rez block work will focus on gathering all geological and geophysical (G&G) data and integrate them into a geology model to further understand the hydrocarbon potential in each of the different prospects identified within the boundaries of the block.
The Golfo San Jorge Basin holds three well-known unconventional formations: D-129 or Matasiete, Cerro Guadal and Anticlinal Aguada Bandera. Among them, D-129 formation has already been successfully tested by YPF, the largest oil and gas producer in Argentina, in the last three past years. After reviewing the available G&G technical data, management sees significant unconventional potential in the D-129 both in the Mata Magallanes Oeste and Ca?ad?n Ram?rez blocks. In this light, Interoil management is strongly supporting the drilling of two pilot unconventional wells aimed at proving the prolific D-129 formation within the coming two years.
The licenses included in the agreement are currently owned by Oil Investment Inc., a holding company registered in Panama. This company has today been acquired by a wholly owned Norwegian subsidiary of Interoil. Oil Investment Inc. is a single purpose vehicle with no historical activity and no material assets other than the licenses and a working capital of USD 1,000,000. It does not have any employees.
The total agreed consideration amounts to USD 13 million, of which 3.9 million will be settled in cash. Of this amount 0.3 million is being paid at closing, and the rest will be paid in three annual installments.
The remainder of the consideration, USD 9.1 million, is being settled through issuance of a total of 22,221,851 new shares in Interoil (the "Consideration Shares") at a subscription price of NOK 3.55 and a USD/NOK conversion rate of 1:8.68. The number of Consideration Shares has been calculated based on a 20 percent discount of the volume-weighted average market price for the Interoil share in the 120-day period immediately preceding closing.
The board of directors has resolved to issue the Consideration Shares based on the authorization granted by Interoil's Annual General Meeting in 2018. Following the registration of the share capital increase with the Norwegian Register of Business Enterprises, Interoil's share capital will increase to NOK 43,456,083, divided into 86,912,166 shares, each with a par value of NOK 0.50.
6,400,000 of the Consideration Shares will become listed and tradable immediately after delivery to the sellers, while 15,821,851 of the Consideration Shares will be placed on a separate ISIN pending approval and publication of a prospectus or an information memorandum, estimated to take place early June 2019.
About the sellers
Prior to the agreed transaction, Oil Investment Inc. was owned by several private and institutional investors in Latin America. Through the transaction, they will become significant new shareholders in Interoil.
Integra Oil and Gas S.A. will receive 7,777,648 Consideration Shares, and will following delivery of such Consideration Shares hold 7.777,648 shares in Interoil, equal to 8.95% of the total number of shares and votes in Interoil.
International Capital Markets Group Inc. will receive 5,555,463 Consideration Shares, and will following delivery of such Consideration Shares hold 5,555,463 shares in Interoil, equal to 6.39% of the total number of shares and votes in Interoil.
Mirage Partners Corp. will receive 4,444,370 Consideration Shares, and will following delivery of such Consideration Shares hold 4,444,370 shares in Interoil, equal to 5.11% of the total number of shares and votes in Interoil.
Brie International Development Corp. will receive 2,222,185 Consideration Shares, and will following delivery of such Consideration Shares hold 2,222,185 shares in Interoil, equal to 2.56% of the total number of shares and votes in Interoil.
Prifen S.A. will receive 2,222,185 Consideration Shares, and will following delivery of such Consideration Shares hold 2,222,185 shares in Interoil, equal to 2.56% of the total number of shares and votes in Interoil.